Abstract. Recent research shows that managers, much like investors, are prone to sentiment. In this paper, we study the effect of managerial sentiment on firms' operations both theoretically and empirically. Consistent with our model's predictions, we find that high managerial sentiment increases employment growth, especially among firms with limited investment opportunities and regardless of their cash resources. We also show that high managerial sentiment offsets the negative effect of low investor sentiment and bad governance on employment, but ultimately leads to lower labor productivity. Overall, the findings unveil a new channel through which optimistic managers affect firms' operations.
Coauthors. Yuhao Zhu (U Rotterdam) and Remco Zwinkels (VU Amsterdam, Tinbergen Institute).
Manuscript. You can download the paper here.
Presentations. The Financial Management Association meetings, the Corporate Finance Day at VU Amsterdam, the Australasian Finance and Banking Conference at UNSW Sydney, the French Finance Association meetings at Audencia Business School, the Financial Markets and Corporate Governance conference at La Trobe University, Utrecht University, the EBES Meetings at the University of Finance and Administration in Prague, the Finance Forum at the University of Cantabria, the IFABS Meetings at Porto Business School, and the Behavioral Finance Working Group Conference at Queen Mary University of London.
Publication. Journal of Behavioral and Experimental Finance, Volume 43, September 2024, 100961, DOI: https://doi.org/10.1016/j.jbef.2024.100961.